Verizon FiOS enters the fray in New York

Time Warner, Cablevison will face new competition

It's game on in the Big Apple. A war of words will end, and a much-anticipated showdown of TV distributors will kick off Monday.

Cable operators Time Warner Cable and Cablevision Systems, which have long dominated the nation's largest media market, and satellite TV providers will face new competition as Verizon will start selling its FiOS TV service here.

In May, the city granted Verizon a TV franchise, and the New York Public Service Commission confirmed it in mid-July. Monday will see Verizon marketing executives tout the FiOS TV service in an event at Grand Central and lay out its rollout and pricing plans in detail.

Most cable and satellite players have admitted feeling at least some competitive pressure from FiOS TV, which as of the end of March had 1.2 million subscribers.

Analysts see little immediate impact for TWC and Cablevision, even though they say the Big Apple will be a case study for how FiOS TV might do longer-term, given that consumers here have a reputation for being hard to please.

Naturally, Verizon executives have in recent weeks been oozing optimism.

"Already, interest by the average New Yorker has been staggering," Monica Azare, Verizon senior vp New York and Connecticut, said recently in announcing that FiOS TV has started accepting orders.

And Verizon chairman and CEO Ivan Seidenberg boasted that in markets where FiOS has been offered for a while, it often has more than 30% market share.

Cable executives have often called out FiOS for locking consumers into long-term contracts with high termination fees and providing fewer HDTV channels. And the company has run expensive marketing campaigns, including a free TV set give-away, in which some consumers have complained that they never got their TV.

The local NYC cable powerhouses talk a comfortable game as well.

"In areas where the telcos compete with us in video, their impact on us is still single digit, even after more than two years of head-to-head marketing," Cablevision COO Tom Rutledge said in the company's first-quarter earnings call. Cablevision, which in New York has a presence in Brooklyn and the Bronx, so far has been most exposed to FiOS competition but mostly has continued to report basic cable user gains.

A Cablevision spokesman was confident about the impending FiOS TV launch in the Big Apple. "We've been competing against satellite providers, RCN and others in New York City for many years, and customers have continued to recognize the value and superiority of Optimum's TV, voice and high-speed Internet services," he said.

Similarly, TWC chairman and CEO Glenn Britt late last year acknowledged that FiOS has made strides in key markets but said the impact on his firm has been "pretty small right now."

But TWC surely will want to work hard to fend off FiOS' challenge in New York given that it is the largest cable provider for the city's population of more than 8.2 million.

According to Sanford C. Bernstein analyst Craig Moffett, the Big Apple's five boroughs provide about 10% of TWC's subscribers and operating cash flow. And, he highlights, TWC strongholds, such as Staten Island and Manhattan, seem to be first on the FiOS rollout list.

Nonetheless, Moffett also points out hurdles for a fast FiOS deployment in New York as building access rights and other complicated issues must first be negotiated.

Overall, the analyst predicts only a 0.15% financial impact risk in the first FiOS year here for TWC. For the smaller Cablevision, he pegs the impact risk only at 0.75%.

"Impact over time will grow," Moffett noted. "It is simply to illustrate that the impact of New York's franchise approval is wildly overstated in the overheated headlines."

Collins Stewart analyst Thomas Eagan has similarly low initial expectations for FiOS.

"Although Cablevision is most exposed longer-term, we expect minor impact near-term," he wrote in a recent report. "Moreover, we expect this much-anticipated event has already been factored into Cablevision's share price."

Pali Research analyst Richard Greenfield seems more concerned than most peers, though. He recently reduced his 2009 TWC estimates. "Based on our checks, TWC does not appear to be well-prepared for Verizon," he said.

TWC spokespeople declined comment.
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